Fundamental Tax Legislation 2020 [(2020 Edition)]

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CORE TAX

Fundamental Tax Legislation 2020

Income Tax Assessment Act 1997

Income Tax Assessment Act 1936

Income Tax Assessment (1936 Act) Regulation 2015

Income Tax Rates Act 1986

Thomson Reuters (Professional) Australia Limited 19 Harris Street PYRMONT NSW 2009 Tel: (02) 8587 7000 [email protected] http://www.thomsonreuters.com.au For all customer inquiries please ring 1300 304 195 (for calls within Australia only) INTERNATIONAL AGENTS & DISTRIBUTORS NORTH AMERICA Thomson Reuters Eagan United States of America

ASIA PACIFIC Thomson Reuters Sydney Australia

LATIN AMERICA Thomson Reuters São Paulo Brazil

EUROPE Thomson Reuters London United Kingdom

OTHER INCOME TAX

Fundamental Tax Legislation 2020

Medicare Levy Act 1986

GST

A New Tax System (GST) Act 1999

A New Tax System (GST) Regulations 2019

FRINGE BENEFITS TAX

Fringe Benefits Tax Act 1986

Fringe Benefits Tax Assessment Act 1986

SUPERANNUATION

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Regulations 1994

Superannuation Guarantee (Administration) Act 1992

INTERNATIONAL

International Tax Agreements Act 1953

Dividend Interest and Royalties Tax Act

ADMINISTRATIVE PROVISIONS

Inspector-General of Taxation Act 2003

Taxation Administration Act 1953/Tax Agent Services Act 2009

Taxation Administration Regulations 2017/ Tax Agent Services Regulations 2009

Income Tax Act 1986

Fundamental Tax Legislation 2020 AUTHORS

DALE PINTO Professor of Taxation Law Curtin Law School, Curtin University and

KEITH KENDALL Member Administrative Appeals Tribunal and

KERRIE SADIQ Professor of Taxation School of Accountancy, Queensland University of Technology

Published in Sydney by Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 19 Harris Street, Pyrmont, NSW, 2009

First edition.........................................................1992 Second edition ....................................................1993 Third edition .......................................................1994 Fourth edition .....................................................1995 Fifth edition ........................................................1996 Sixth edition........................................................1997 Seventh edition ...................................................1998 Eighth edition .....................................................1999 Ninth edition.......................................................2000 Tenth edition.......................................................2001 Eleventh edition..................................................2002 Twelfth edition....................................................2004 Thirteenth edition ...............................................2005 Fourteenth edition...............................................2006

Fifteenth edition..................................................2007 Sixteenth edition.................................................2008 Seventeenth edition ............................................2009 Eighteenth edition...............................................2010 Nineteenth edition...............................................2011 Twentieth edition ................................................2012 Twenty-first edition ............................................2013 Twenty-second edition........................................2014 Twenty-third edition ...........................................2015 Twenty-fourth edition .........................................2016 Twenty-fifth edition ............................................2017 Twenty-sixth edition ...........................................2018 Twenty-seventh edition ......................................2019 Twenty-eighth edition.........................................2020

National Library of Australia Cataloguing-in-Publication entry Australia. ISSN 1329–9574 Product No: 978 0455 244006 © 2020 Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act 1968, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Inquiries should be addressed to the publishers. The publishers, authors, contributors and endorsers of this publication each exclude liability for loss suffered by any person resulting in any way from the use of, or reliance on this publication. Copyright of Commonwealth legislative material: All Commonwealth legislative material is reproduced by permission but does not purport to be the official or authorised version. Some changes in layout and design have been made to enhance the readability, but the greatest care has been taken not to alter the text of the law. This publication is subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain reproduction and publication of Commonwealth legislation. In particular, s 182A of the Act enables a complete copy to be made by or on behalf of a particular person. For reproduction or publication beyond that permitted by the Act, permission should be sought in writing. Requests should be addressed to the Manager, Copyright Services, Info Access, Department of Communications, Information Technology and the Arts, GPO Box 1920, Canberra City ACT 2601, or e-mailed to [email protected]

This book has been printed on paper certified by the Programme for the Endorsement of Forest Certification (PEFC). PEFC is committed to sustainable forest management through third party forest certification of responsibly managed forests. For more info: www.pefc.org

HOW TO USE To locate the sections, use the information in the running heads which will indicate the Part, Division and Subdivision in each Act or Regulation where relevant as well as the provision number above the rule. To locate the sections in the Income Tax Assessment Act 1997 and A New Tax System (Goods and Services) Act 1999: • identify the relevant Division number (each section number includes the Division number as a prefix); then • locate the start of the Division using the running heads and thumb through to the required section. A complete list of the sections included for each Act and Regulation is provided in the table of provisions. Please note that tables of subdivisions, although forming part of the legislation, have not been reproduced. Repealed provisions have also been excluded. This book includes extracts on: Core tax Income Tax Income Tax Income Tax Income Tax

Assessment Act 1997 Assessment Act 1936 Assessment (1936 Act) Regulation 2015 Rates Act 1986

Other income tax Medicare Levy Act 1986 GST A New Tax System (Goods and Services Tax) Act 1999 A New Tax System (Goods and Services Tax) Regulations 2019 Fringe Benefits Tax Fringe Benefits Tax Act 1986 Fringe Benefits Tax Assessment Act 1986 Superannuation Superannuation Industry (Supervision) Act 1993 Superannuation Industry (Supervision) Regulations 1994 Superannuation Guarantee (Administration) Act 1992 International International Tax Agreements Act 1953 Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 Administrative Provisions Taxation Administration Act 1953 Taxation Administration Regulations 2017 Income Tax Act 1986 Inspector-General of Taxation Act 2003

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How to Use

Tax Agent Services Act 2009 Tax Agent Services Regulations 2009

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Fundamental Tax Legislation 2020

PREFACE First published in 1992, this is the 28th edition of Thomson Reuters’ Fundamental Tax Legislation. It contains extracts of tax-related legislation as it stood on 31 December 2019, with updates after that date being incorporated as far as possible. Updated and expanded for 2020, this volume is an indispensable reference for undergraduate and postgraduate students of taxation. 2019 was another busy year for tax in Australia. Many separate amending Acts relating to taxation were assented to during the year. Assented legislative changes are contained in a Year in Review section, which summarises the legislative developments in taxation over the previous 12 months. A Tax Rates and Tables section which contains an accessible summary of the main tax rates and tables that students will need to refer to for their tax studies is also included at the front of the 2020 edition of Fundamental Tax Legislation. We wish to acknowledge the significant contribution by the editing and production staff at Thomson Reuters, and would like to particularly recognise the patience, professionalism and good humour of Stephen Rennie, Sandesh Reddy Gaddam and Rebecca Beech who have been an absolute pleasure to work with on this project. Finally, and most importantly, we must record our thanks to our families, whose ongoing support, encouragement and sacrifices made completion of this edition possible. Professor Dale Pinto Professor Kerrie Sadiq Dr Keith Kendall December 2019 Fundamental Tax Legislation 2020 contains extracts of legislation as it stood on 31 December 2019.

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ACKNOWLEDGMENTS Contributions from the following persons are gratefully acknowledged. THOMSON REUTERS (PROFESSIONAL) AUSTRALIA LIMITED Editorial staff: Sandesh Reddy Gaddam, Rebecca Beech, Anicee Dowling, Sophie Fotis, Jason Diamond, Sumitha Chintha Kuntla and Jessica Feenstra Technical production: Patrick Harper Product developer: Stephen Rennie Publisher: Robert Wilson

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TABLE OF CONTENTS How to Use .................................................................................................................................................... iii Preface ............................................................................................................................................................. v Key Tax Formulae ......................................................................................................................................... xi Tax Rates and Tables ................................................................................................................................... xiii Year In Review – 2019 ............................................................................................................................. xxiii Income Tax Assessment Act 1997 ............................................................................................................... 27 Chapter 1 – Introduction and core provisions ........................................................................................... 101 Chapter 2 – Liability rules of general application .................................................................................... 145 Chapter 3 – Specialist liability rules .......................................................................................................... 423 Chapter 4 – International aspects of income tax ..................................................................................... 1165 Chapter 5 – Administration ...................................................................................................................... 1285 Chapter 6 – The dictionary ...................................................................................................................... 1299 Income Tax Assessment Act 1936 ........................................................................................................... 1447 Income Tax Assessment (1936 Act) Regulation 2015 ............................................................................. 1817 Income Tax Rates Act 1986 ..................................................................................................................... 1829 Medicare Levy Act 1986 .......................................................................................................................... 1853 A New Tax System (Goods and Services Tax) Act 1999 ....................................................................... 1861 A New Tax System (Goods and Services Tax) Regulations 2019 .......................................................... 1991 Fringe Benefits Tax Act 1986 ................................................................................................................... 2009 Fringe Benefits Tax Assessment Act 1986 ............................................................................................... 2011 Superannuation Industry (Supervision) Act 1993 .................................................................................... 2117 Superannuation Industry (Supervision) Regulations 1994 ...................................................................... 2159 Superannuation Guarantee (Administration) Act 1992 ............................................................................ 2171 International Tax Agreements Act 1953 ................................................................................................... 2199 Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 ......................................... 2225 Taxation Administration Act 1953 ........................................................................................................... 2227 Taxation Administration Regulations 2017 .............................................................................................. 2347 Income Tax Act 1986 ............................................................................................................................... 2355 Inspector-General of Taxation Act 2003 .................................................................................................. 2357 Tax Agent Services Act 2009 ................................................................................................................... 2363 Tax Agent Services Regulations 2009 ..................................................................................................... 2395

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KEY TAX FORMULAE The Key Tax Formula applicable to all entities can be set out as follows: Assessable Income Minus Deductions = Taxable Income apply Tax Rates = Gross Tax Payable Minus Offsets = Net Tax Payable Add Medicare Levy and Surcharge

For applicable rates, offsets and surcharges, see the Tax Rates and Tables 2020 section of this book.

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TAX RATES AND TABLES 2020 The following information has been extracted from Thomson Reuters’ Tax Rates and Tables.

GENERAL RATES – RESIDENTS Taxable income $ 0 - 18,200 18,201 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001+

Tax payable1, 2, 3, 4 $ Nil Nil + 19% of excess over 18,200 3,572 + 32.5% of excess over 37,000 20,797 + 37% of excess over 90,000 54,097 + 45% of excess over 180,000

1 Does not include Medicare levy (payable at a flat rate of 2% of taxable income). 2 Individuals with business income from an unincorporated small business entity (eg sole traders) can claim a tax offset of 8% (capped at $1,000). 3 The first $37,000 of taxable income earned by certain working holiday makers is taxed at 15% even if the person is a resident. 4 The $87,000 threshold increased to $90,000 from 2018-19. From 2022-23, the $37,000 threshold for the 19% rate will increase to $45,000 and the $90,000 threshold for the 32.5% rate will increase to $120,000. From 2024-25, the rate that applies to taxable income between $45,000 and $200,000 will be 30% and the top marginal tax rate of 45% will apply to taxable income in excess of $200,000.

GENERAL RATES – FOREIGN RESIDENTS Taxable income $ 0 - 90,000 90,001 - 180,000 180,001+

Tax payable1, 2, 3, 4 $ 32.5% 29,250 + 37% of excess over 90,000 62,550 + 45% of excess over 180,000

1 Foreign residents who hold a Special Program Visa (subclass 416) and are employed by an approved employer under the Seasonal Labour Mobility Program will be taxed at 15%. 2 Individuals with business income from an unincorporated small business entity (eg sole traders) can claim a tax offset of 8% (capped at $1,000). 3 The first $37,000 of taxable income earned by certain working holiday makers is taxed at 15% instead of 32.5%. 4 The $87,000 threshold increased to $90,000 from 2018-19. From 2022-23, the $90,000 threshold for the 32.5% rate will increase to $120,000. From 2024-25, the rate that applies to all taxable income not exceeding $200,000 will be 30% and the top marginal tax rate of 45% will apply to taxable income in excess of $200,000.

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Tax Rates and Tables 2020

MEDICARE LEVY – GENERAL RATE Medicare levy applies only to residents. The rate of Medicare levy from the 2014-15 income year and onwards is 2%. The 2019-20 rate scales are unlikely to be known until May 2020. The 2018-19 rates are summarised in the table below. Taxpayer Individual Senior and pensioner tax offset (SAPTO)

Taxable income $ 0 - 22,398 22,399 - 27,997 27,998+ 0 - 35,418 35,419 - 44,272 44,273+

Medicare levy payable $ Nil 10% of excess over 22,398 2% of entire amount Nil 10% of excess over 35,418 2% of entire amount

MEDICARE LEVY – SURCHARGE The Medicare levy surcharge is means tested against 3 income tier thresholds. Taxpayers who do not have the appropriate level of private patient hospital cover will be subject to a higher rate of surcharge. The surcharge thresholds are indexed but have been paused at 2014-15 rates with effect from 1 July 2015 until 30 June 2021. Therefore the thresholds and surcharge rates below will apply for the 2015-16 to 2020-21 income years.

$ Singles 0 - 90,000 Families1 0 - 180,000 Medicare levy surcharge Rates 0.0%

Tier 1 $ 90,001 - 105,000 180,001 - 210,000

Tier 2 $ 105,001 - 140,000 210,001 - 280,000

Tier 3 $ 140,001+ 280,001+

1.0%

1.25%

1.5%

1. For families with 2 dependants who are children, the surcharge thresholds to tiers 1, 2 and 3 are increased by $1,500. The thresholds then increase by $1,500 for each additional child. For a more detailed analysis of the Medicare levy surcharge, refer to Thomson Reuters’ Australian Tax Handbook 2020.

LOW INCOME TAX OFFSET (LITO) Taxable income (TI) $ 0 - 37,000 37,001 - 66,666 66,667+

Offset $ 445 445 − ([TI − 37,000] × 1.5%) Nil

LOW AND MIDDLE INCOME TAX OFFSET (LMITO) Taxable income (TI) $ 0 - 37,000 37,001 – 48,000 48,001 – 90,000 90,001 – 126,000

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Offset $ 255 255 + ([TI – 37,000] × 7.5%) 1,080 1,080 – ([TI – 90,000] × 3%)

Fundamental Tax Legislation 2020

Tax Rates and Tables 2020

Taxable income (TI) $ 126,001+

Offset $ Nil

A low and middle income tax offset (LMITO) applies from the 2018-19 income year (until the 2021-22 income year) for resident individuals (and certain trustees) with taxable income not exceeding $126,000. The amount of the offset will depend on the individual’s taxable income as set out in the table above. From 2022-23, LMITO and the existing low income tax offset (LITO) will be replaced by a new LITO. The LMITO is in addition to the LITO so that a resident taxpayer may receive both tax offsets. It is non-refundable and cannot be carried forward, transferred or used to reduce the Medicare levy. Similarly to the LITO, an eligible minor is not able to access the LMITO to reduce the tax payable on “unearned income” under Div 6AA of the ITAA 1936.

MINORS (DIVISION 6AA) INCOME – RESIDENT MINORS Div 6AA income $ 0 - 416 417 - 1,307 1,308+

Tax payable1, 3 $ Nil 66% of excess over 416 45%2 of entire amount

1 Rates apply if a minor beneficiary is only entitled to Div 6AA income from a trust estate (ie unearned income of minors). Note that minors will not be able to access the low income tax offset to reduce the tax payable on unearned income caught by Div 6AA. 2 The temporary budget repair levy (2%) ceased to apply from 1 July 2017. 3 A minor who qualifies as a small business entity may be entitled to the small business tax offset.

MINORS (DIVISION 6AA) INCOME – FOREIGN RESIDENT MINORS Div 6AA income $ 0 - 416 417 - 663 664+

Tax payable1 $ 32.5% of entire amount 135.20 + 66% of excess over 416 45%2 of entire amount

1 A minor who qualifies as a small business entity may be entitled to the small business tax offset. 2 The 2% temporary budget repair levy ceased to apply from 1 July 2017.

COMPANIES – GENERAL RATE Corporate tax rates are uniform regardless of whether the company is public or private. However, special rates apply to certain non-profit companies. Special rates also apply to certain companies that provide Retirement Savings Accounts (RSA), but only on those accounts. 2019-20 and later income years Financial year Aggregated turnover less than 2019-20 $50m 2020-21 $50m 2021-22+ $50m

Corporate tax rate1 27.5% 26% 25%

1 As originally enacted, the rate would have remained at 27.5% until 2024-25 and then it would have gradually reduced to 25% by 2026-27.

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Tax Rates and Tables 2020

TRUSTEE RATES SECTION 98 ASSESSMENTS – RESIDENT BENEFICIARIES

Taxable income $ 0 - 18,200 18,201 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001+

Tax payable1 $ Nil Nil + 19% of excess over 18,200 3,572 + 32.5% of excess over 37,000 20,797 + 37% of excess over 90,000 54,097 + 45% of excess over 180,000

1 Does not include Medicare levy (payable at a flat rate of 2% of taxable income). SECTION 98 ASSESSMENTS – FOREIGN RESIDENT BENEFICIARIES The following rates apply where a presently entitled beneficiary is a foreign resident. Taxable income $ 0 - 90,000 90,001 - 180,000 180,001+

Tax payable $ 32.5% 29,250 + 37% of excess over 90,000 62,550 + 45% of excess over 180,000

SECTION 99 ASSESSMENTS – DECEASED ESTATES RESIDENT TRUSTS Less than 3 years since death The following tax rates apply where a trustee is assessed under s 99 in respect of the net income (or part of the net income) of a resident trust estate of a deceased person who died less than 3 years before the end of the income year. Taxable income $ 0 - 18,200 18,201 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001 +

Tax payable1 $ Nil Nil + 19% of excess over 18,200 3,572 + 32.5% of excess over 37,000 20,797 + 37% of excess over 90,000 54,097 + 45% of excess over 180,000

1 Does not include Medicare levy (payable at a flat rate of 2% of taxable income). Three years or more since death The following tax rates apply where a trustee is assessed under s 99 in respect of the net income (or part of the net income) of a resident trust estate of a deceased person who died more than 3 years before the end of the income year (these are the same rates as apply to resident individual beneficiaries). Net income $ 0 - 416 417 - 670 671 - 37,000 37,001 - 90,000 90,001 - 180,000 180,001 +

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Tax payable $ Nil 50% of excess over 416 127.30 + 19% of excess over 670 7,030 + 32.5% of excess over 37,000 24,255 + 37% of excess over 90,000 57,555 + 45% of excess over 180,000

Fundamental Tax Legislation 2020

Tax Rates and Tables 2020

SECTION 99A ASSESSMENTS The following applies where there is no beneficiary presently entitled to a share of the net income of the trust. Net income $ 0+

Tax payable $ 45% of entire amount

PRIVATE COMPANY LOANS (DIV 7A) – BENCHMARK INTEREST RATE Income year

Interest rate % 5.37

2019-2020

FBT AND CARS – STATUTORY BENCHMARK INTEREST RATES FBT year ending

Interest rate % 5.37

31 March 2020

FBT AND LOANS – STATUTORY BENCHMARK INTEREST RATES FBT year ending 31 March 2020

Interest rate 5.37

CPI INDEX NUMBERS AND INDEXATION Year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

31 March 114.1 112.6 110.5 108.2 106.8 105.4 102.40 99.90 98.30 95.20 92.50 90.30 86.60 84.50 82.10 80.20 78.60 76.10 73.90

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Quarter ending 30 June 30 September 113.0 110.7 108.6 107.5 105.9 102.80 100.40 99.20 95.80 92.90 91.60 87.70 85.90 82.60 80.60 78.60 76.60 74.50

113.5 111.4 109.4 108.0 106.4 104.00 101.801 99.80 96.50 93.80 92.70 88.30 86.70 83.40 80.90 79.10 77.10 74.70

31 December 114.1 112.1 110.0 108.4 106.6 104.80 102.00 99.80 96.90 94.30 92.40 89.10 86.60 83.80 81.50 79.50 77.60 75.40

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Year

31 March 69.70 67.80 67.00 67.10 66.20 63.80 61.50 60.60 59.90 58.90 56.20 51.70 48.40 45.30 41.40 37.90

2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985

Quarter ending 30 June 30 September 70.20 72.90 68.10 68.70 67.40 67.50 66.90 66.60 66.70 66.90 64.70 65.50 61.90 62.30 60.80 61.10 59.70 59.80 59.00 59.30 57.10 57.50 53.00 54.20 49.30 50.20 46.00 46.80 42.10 43.20 38.80 39.70

31 December 73.10 69.10 67.80 66.80 67.00 66.00 62.80 61.20 60.10 59.90 59.00 55.20 51.20 47.60 44.40 40.50

1. From the September 2012 quarter, the index numbers have been calculated on a new index reference period of 2011-12. This has resulted in the index numbers for each index series being reset to 100.0 for the 2011-12 financial year. According to the ABS, the differences do not constitute a revision. The figures shown in the above table are the reset index numbers.

IMPROVEMENTS – SEPARATE ASSET THRESHOLDS Year of disposal

Monetary threshold $ 153,093 150,386 147,582 145,401 143,392 140,443 136,884

2019-20 2018-19 2017-18 2016-17 2015-16 2014-15 2013-14

TREATY COUNTRIES – DIVIDENDS, INTEREST, ROYALTIES The rates contained in the table represent limits only on the tax which Australia may impose, and are referable to the gross amount of the income item in question. Hence, if Australian tax payable is less than the limits, the Australian tax otherwise payable will apply. The provisions of the relevant treaty should always be consulted for exclusions, eg if dividends, interest or royalties are effectively connected with a permanent establishment.

Country Argentina Austria Belgium Canada Chile4 China5 Czech Republic Denmark

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Dividends % 10-151 15 15 153 15 15 5-156 15

Interest % 12 10 10 10 10 10 10 10

Royalties % 10-152 10 10 10 10 10 10 10

Fundamental Tax Legislation 2020

Tax Rates and Tables 2020

Country Fiji Finland7 France8 Germany9 Hungary India Indonesia Ireland Italy Japan12 Kiribati Korea Malaysia Malta Mexico14 Netherlands New Zealand15 Norway16 Papua New Guinea Philippines Poland Romania Russian Federation Singapore Slovakia South Africa24 Spain Sri Lanka Sweden Switzerland26 Taiwan27 Thailand Turkey30 UK31 USA32 Vietnam

Dividends % 20 15 15 0-15 15 15 15 15 15 10 20 15 15 1513 15 15 15 15 15-2017 15-2518 15 5-1521 5-1522 1523 15 15 1525 15 15 0-15 10-15 15-2028 15 0-15 0-30 10-1533

Interest % 10 10 10 0-10 10 15 10 10 10 10 10 15 15 15 10-15 10 10 10 10 10-1519 10 10 10 10 10 10 10 10 10 0-10 10 10-2529 10 0-10 0-10 10

Royalties % 15 5 5 5 10 10-1510 10-1511 10 10 5 15 15 15 10 10 10 5 10 10 15-2520 10 10 10 10 10 10 10 10 10 5 12.5 15 10 5 5 10

1 The Australian withholding tax rate is: (i) 10% on fully franked dividends if the recipient has a minimum 10% direct voting interest in the paying company; and (ii) 15% in all other cases. In Argentina the withholding tax rate is: (i) 10% if the recipient has a minimum 25% direct capital interest in the paying company; and (ii) 15% in all other cases. 2 Source country withholding tax rate is 10% or 15% depending on type of royalty. The 10% rate applies in respect of: copyright on literary works; industrial and scientific equipment; industrial and scientific knowledge; and ancillary assistance. For “other technical assistance” the 10% rate applies on a net basis. The 15% rate applies to: other copyright, patents and trademarks; commercial equipment; satellite reception of, TV or radio broadcast of, visual images or sounds; motion pictures and videos etc. In Argentina, there is a special 3% withholding tax applied to payments treated as royalties in respect of the transfer of news by an international news agency. 3 Lower (5%) rate applicable to non-portfolio dividends. In the case of dividends flowing from Australia to Canada, dividends must also be franked for 5% rate to apply. Agreement allows each country to impose a branch profits tax at 5%, but only Canada currently imposes such a tax. 4 Provisions of the Chile agreement will take effect in 4 stages. The dividend withholding rate will be 15%, unless the beneficial owner is a company which holds directly at least 10% of the voting power in the company paying the dividend, in which case the rate will be 5%. The interest withholding rate

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Tax Rates and Tables 2020

Country

Dividends Interest Royalties % % % will be 10% if Australian sourced interest and 15% if Chilean sourced interest. However, a 5% rate will apply if the interest is derived by a financial institution which is unrelated to, and deals wholly independently with, the payer. The royalty withholding rate will be 10% (5% for payments for the use of, or rights to use, industrial, commercial or scientific equipment). 5 For the purposes of the agreement, China does not include Hong Kong (Ruling TR 97/19) nor the Special Administrative Region of Macau (Determination TD 2000/9). 6 The Australian withholding tax rate is 5% for franked dividends and 15% for unfranked dividends. The Czech Republic withholding rate is: (i) 5% if the recipient Australian resident company has a minimum 20% direct capital holding in the paying company; and (ii) 15% in other cases. 7 In the case of intercorporate dividends, there is an exemption if the dividend recipient is a company that holds directly at least 80% of the voting power of the company paying the dividend, subject to certain conditions. A 5% rate applies for other intercorporate dividends if the dividend recipient is a company that holds directly at least 10% of the voting power of the company paying the dividend. 8 Intercorporate non-portfolio dividends are not subject to withholding in the source country if paid out of profits that have borne the normal rate of company tax. A 5% rate applies for all other non-portfolio intercorporate dividends. Amounts derived from equipment leasing, including certain container leasing, are excluded from the royalty definition. 9 Under the revised DTA agreement, no source country tax is payable on intercorporate dividends where the beneficial owner of those dividends is a company (other than a partnership) that is a resident of the other country which holds directly at least 80% of the voting power of the paying company throughout a 12 month period, subject to certain conditions. If the resident holds at least 10% of the voting power and the dividends are paid throughout a 6-month period, the rate is 5%. 15% limit applies to all other dividends. In respect to interest, source country taxation is limited to 10% subject to certain exemptions (eg bodies exercising governmental functions etc). A royalties rate limit of 5% applies to the source country. 10 Source country withholding tax rate is 10% for payments for the use of, or rights to use, industrial, commercial or scientific equipment and ancillary and subsidiary technical or consultancy services rendered in relation to such equipment. A rate of 15% applies for all other royalties. 11 The source country withholding tax rate is 10% for payments relating to the use of, right to use, or related ancillary services for, industrial, commercial and scientific equipment or the supply of scientific, technical, industrial or commercial knowledge or information. A rate of 15% applies for all other royalties. 12 In the case of intercorporate dividends, there is an exemption if the dividend recipient is a company that holds directly at least 80% of the voting power of the company paying the dividend, subject to certain conditions, and a 5% rate applies if the dividend recipient is a company that holds directly at least 10% of the voting power of the company paying the dividend. In addition, in the case of dividends paid by a Japanese resident company entitled to a deduction for dividends paid to its beneficiaries, a 15% rate limit applies if more than 50% of the paying company’s assets consist, directly or indirectly, of real property situated in Japan and a 10% rate limit applies in all other cases. 13 Withholding tax on dividends paid by a resident Malta company to an Australian resident are limited to the tax in chargeable in Malta on the profits out of which the dividend is paid (including any reduced rate of tax applicable under Malta’s investment incentive arrangements). If Maltese tax is less than the company tax chargeable on such profits, the difference is refundable to the dividend recipient. 14 If non-portfolio dividends have been fully taxed at the corporate level, a zero rate applies. In Australia, franked dividends, in any case, are exempt from withholding tax under domestic law, while Mexico does not impose withholding tax on dividends. The lower rate for interest (10%) will apply if certain conditions are met, including if the person beneficially entitled is a bank or an insurance company. 15 In the case of intercorporate non-portfolio dividends, there is an exemption if the recipient holds directly at least 80% of the voting power of the company paying the dividend. A 5% rate applies on all other intercorporate non-portfolio dividends if the recipient holds directly at least 10% of the voting power of the company paying the dividend. A zero rate applies to dividends paid in respect of portfolio investment by a government body. There is an interest withholding tax exemption for government

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Tax Rates and Tables 2020

Country

Dividends Interest Royalties % % % bodies, central banks and certain other financial institutions. Royalties include amounts paid for spectrum licences amounts derived from leasing industrial, commercial or scientific equipment are excluded. 16 In the case of intercorporate non-portfolio dividends, there is an exemption in the source country if the recipient holds directly at least 80% of the voting power of the company paying the dividend and a 5% rate for all other non-portfolio intercorporate dividends. Amounts derived from equipment leasing, including certain container leasing, are excluded from the definition of royalty and are treated as either profits from international transport operations or business profits. 17 Withholding tax rate is 15% if Australia is the source country and 20% if PNG is the source country. 18 The agreement provides for a withholding tax rate of 15% if the recipient is a company and the beneficial owner of the dividends is entitled to relief by way of rebate or credit. For Philippines source dividends the rate remains at 15% although Australia now provides relief by way of exemption for such dividends. In other cases the rate is 25%. 19 The withholding tax rate is 15% for both countries, except that the rate of Philippines withholding tax on interest arising from public bond issues etc is 10%. As the limit set by the agreement exceeds that set under Australian domestic law, Australian withholding tax is 10%. 20 The withholding tax rate is 15% for royalties paid by an enterprise registered with the Philippines Board of Investments and engaged in preferred activities. In other cases, the rate of tax is 25%. 21 The withholding tax rate is 5% if paid out of fully taxed profits and the recipient holds a minimum 10% direct capital interest in the paying company. In any other case the rate is 15%. 22 The withholding tax rate is generally 15%, but a 5% rate applies if: (i) the dividends have been fully taxed at company level; (ii) the recipient is a company with a minimum 10% direct capital holding in the paying company; and (iii) the recipient has invested a minimum of A$700,000 (or rouble equivalent) in the paying company. To qualify for the 5% rate, Russian source dividends must also be exempt from Australian tax. 23 Singapore source dividends are not subject to withholding tax. 24 In the case of intercorporate dividends, a 5% rate applies if the dividend recipient is a company that holds directly at least 10% of the voting power of the company paying the dividend. 25 The 15% rate does not apply to income which, under Spanish taxation law relating to transparent companies, is attributable to shareholders of such companies. This income is taxed under its domestic law, provided that the income has not been subject to Spanish corporation tax. 26 Under the revised DTA with Switzerland, a zero withholding rate applies to dividends paid to public listed companies, or subsidiaries thereof, or to unlisted companies in certain circumstances, that hold 80% or more of the paying company, and also to dividends paid to complying Australian super funds and tax exempt Swiss pension schemes. A 5% withholding rate applies to dividends paid to companies that hold 10% or more of the paying company and a 15% withholding rate applies in all other cases. The interest withholding rate is zero for interest paid to bodies exercising governmental functions and to banks performing central banking functions, banks that are unrelated to, and dealing independently with, the payer and complying Australian super funds and tax exempt Swiss pension schemes; a 10% withholding rate applies in all other cases. The revised definition of royalties will exclude the right to use industrial, commercial or scientific equipment. Royalties may be taxed in the source country at up to 5%. 27 For diplomatic reasons, the signatories to this agreement are trade offices (the Australian Commerce and Industry Office and the Taipei Economic and Cultural Office) rather than the governments of Australia and Taiwan. 28 The withholding tax limit specified in the agreement only applies if the recipient company holds a minimum 25% direct capital holding in the paying company. In such cases the limit is 15% if the paying company is engaged in an industrial undertaking and 20% otherwise. 29 The withholding tax rate is 10% for interest to which a financial institution (including an insurance company) is beneficially entitled. In other cases the rate is 25%. 30 The dividend withholding rate is limited to 5% on certain inter-corporate non-portfolio dividends where the recipient holds directly at least 10% of the voting power of the Australian company paying

© 2020 THOMSON REUTERS

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Tax Rates and Tables 2020

Country

Dividends Interest Royalties % % % the dividend or 25% of the capital of the Turkish company paying the dividend. An exemption applies for interest derived from the investment of official reserve assets by a government, its central bank or a bank performing central banking functions. 31 There is a 5% rate for non-portfolio dividends and a 15% rate for other dividends. In addition, there is a zero rate on dividends if the recipient is a company that holds directly at least 80% of the voting power of the paying company. These rates apply to both franked and unfranked dividends. A zero rate applies to interest derived by a government body of the other country or a financial institution resident in the other country. 32 General treatment is 5% rate for non-portfolio dividends and 15% rate for other dividends. However, special provision is made for: (i) zero rate on dividends paid to a company resident in the other country which has at least 80% control of the payer; (ii) 15% rate for dividends paid by a US regulated investment company; (iii) 15% rate for dividends paid by a US real estate investment trust (REIT) to a listed Australian property trust. This rate is subject to limits on interests held in the REIT by persons beneficially entitled to the dividends. If these limits are exceeded, the rate is 30%. A zero rate applies to interest derived by a government body of the other country or a financial institution resident in the other country. Interest calculated by reference to the profits of the payer can be taxed at 15% (equivalent to the general rate for dividends). 33 The withholding tax rate is 10% for dividends paid by Vietnamese resident companies and 15% for Australian resident companies.

NON-TREATY COUNTRIES – DIVIDENDS, INTEREST, ROYALTIES The withholding tax rates in respect of the unfranked portion of dividends, interest and royalties apply to the gross amount of such dividends, interest or royalties. Dividends (unfranked portion) % 30

xxii

Interest % 10

Royalties % 30

Fundamental Tax Legislation 2020

YEAR IN REVIEW – 2019 Introduction The following table summarises the main tax statutes which passed both Houses of Parliament and received Royal Assent during 2019. The main effects of each bill are summarised in the accompanying paragraphs, and the main provisions arising from these amendments have been incorporated in this edition of Fundamental Tax Legislation. All monetary amounts are in Australian dollars unless otherwise indicated. Dates in bold refer to 2019. The following table is current to 11 November 2019. Short Title

Intro House Income Tax (Managed Investment Trust With- 20/9 holding Tax) Amendment 2018

Passed Intro Passed Assent Act No. House Senate Senate Date 14/2 14/2 3/4 5/4 35

(Act citation: IIncome Tax (Managed Investment Trust Withholding Tax) Amendment 2019)

14/2

14/2

3/4

5/4

36

3/4

3/4

3/4

5/4

28

22/6

22/6

5/12

1/3

7

16/10

17/10

17/10

28/10

94

25/6

25/6

5/12

1/3

8

17/10

18/10

14/2

12/3

15

24/7

12/9

12/9

19/9

2/10

78

13/2

2/4

3/4

3/4

5/4

49

13/2

2/4

3/4

3/4

5/4

43

24/7

1/8

1/8

16/10

28/10

95

Income Tax Rates Amendment (Sovereign Enti- 20/9 ties) 2018 (Act citation: Income Tax Rates Amendment (Sovereign Entities) 2019)

Social Services Legislation Amendment (Energy 3/4 Assistance Payment) 2019 Treasury Laws Amendment (2017 Enterprise 30/3 Incentives No 1) 2017 (Act citation: Treasury Laws Amendment (2017 Enterprise Incentives No 1) 2019)

Treasury Laws Amendment (2018 Measures No 18/9 2) 2019 Treasury Laws Amendment (2018 Measures No 28/3 4) 2018 (Act citation: Treasury Laws Amendment (2018 Measures No 4) 2019)

Treasury Laws Amendment (2018 Measures No 20/9 5) 2018 (Act citation: Treasury Laws Amendment (2018 Measures No 5) 2019

Treasury Laws Amendment (2018 Superannuation Measures No 1) 2019 Treasury Laws Amendment (2019 Measures No 1) 2019 Treasury Laws Amendment (2019 Petroleum Resource Rent Tax Reforms No 1) 2019 Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) 2019

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Year In review – 2019

Short Title

Intro House Treasury Laws Amendment (Increasing and 13/2 Extending the Instant Asset Write-Off) 2019

Passed Intro Passed Assent Act No. House Senate Senate Date 2/4 3/4 3/4 6/4 51

(Previous citation: Treasury Laws Amendment (Increasing the Instant Asset Write Off for Small Business Entities) 2019)

14/2

2/4

3/4

5/4

34

4/7

31/7

1/8

9/9

13/9

65

2/4

3/4

3/4

3/4

5/4

29

2/4

2/4

3/4

3/4

5/4

30

21/6

28/6

28/6

14/2

12/3

16

2/7

4/7

4/7

5/7

52

25/7

29/7

29/7

7/8

59

Treasury Laws Amendment (Making Sure Foreign 20/9 Investors Pay Their Fair Share of Tax in Australia and Other Measures) 2019 (Previous citation: Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) 2018)

Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) 2019 Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) 2019 Treasury Laws Amendment (North Queensland Flood Recovery) 2019 Treasury Laws Amendment (Protecting Your Superannuation Package) 2018 (Act citation: Treasury Laws Amendment (Protecting Your Superannuation Package) 2019)

Treasury Laws Amendment (Tax Relief So Work- 2/7 ing Australians Keep More Of Their Money) 2019 Treasury Laws Amendment (Timor Sea Maritime 24/7 Boundaries Treaty) 2019

2017 Bills passed in 2019 Treasury Laws Amendment (2017 Enterprise Incentives No 1) 2017 Act 7 of 2019 Introduces the similar business test as a supplement to the same business test designed to allow more flexible access to corporate losses as a means of assisting innovation and growth with application to income years starting on or after 1 July 2015. Also allows taxpayers to self-assess the effective life of certain intangible assets, rather than the statutory effective life, for assets that the taxpayer began to hold on or after 1 July 2016.

2018 Bills passed in 2019 Income Tax (Managed Investment Trust Withholding Tax) Amendment 2018 Act 35 of 2019 Introduces consequential amendments to ensure that the withholding rate applicable to non-concessional income of a managed investment trust (MIT) is 30%. Income Tax Rates Amendment (Sovereign Entities) 2018 Act 36 of 2019 Introduces consequential amendments to ensure that sovereign entities are liable to tax on taxable income at a rate of 30%. Treasury Laws Amendment (2018 Measures No 4) 2018 Act 8 of 2019 Introduces changes to the superannuation guarantee system to: • allow the Commissioner of Taxation to issue directions to employers to pay unpaid superannuation guarantee amounts and attend education courses; xxiv

Fundamental Tax Legislation 2020

Year In review – 2019

• allow the Commissioner to disclose more information to affected employees regarding superannuation guarantee non-compliance; • extend Single Touch Payroll to all employers; • facilitate more regular reporting by superannuation funds; • improve the operation of the Commissioner of Taxation’s collection and compliance measures; and • streamline the employee commencement process. Amendments also introduced to allow the Commissioner of Taxation to share and verify tax file numbers with other Commonwealth agencies that have been obtained in accordance with Commonwealth law, lists 3 new deductible gift recipients and technical amendments to improve the efficiency of the tax laws. Treasury Laws Amendment (2018 Measures No 2) 2019 Act 94 of 2019 Amends the venture capital and early stage investor tax concession provisions to ensure those provisions operate as intended. Treasury Laws Amendment (2018 Measures No 5) 2018 Act 15 of 2019 Introduces technical amendments to the Managed Investment Trust (MIT) and Attribution Managed Investment Trust (AMIT) rules to ensure those rules operate as intended. Includes 6 new listed deductible gift recipients and extends the deductible gift recipient rules to allow endorsement for entities promoting Indigenous languages. Treasury Laws Amendment (2018 Superannuation Measures No 1) 2019 Act 78 of 2019 Introduces amendments to permit employees with multiple employers to avoid unintentionally breaching the superannuation concessional contributions cap, ensures that the non-arm’s length income rules apply to a superannuation fund that incurs non-arm’s length expenditure in deriving that income and ensures that the total value of superannuation assets are considered when determining member balances where limited recourse borrowing arrangements are involved. Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) 2019 Act 34 of 2019 Limits the availability of concessions relating to Managed Investment Trusts (MIT) in respect of stapled instruments and for foreign investors, modifies the thin capitalisation rules to prevent double gearing structures and limits the withholding tax exemption for superannuation funds with members who are foreign residents. Treasury Laws Amendment (Protecting Your Superannuation Package) 2018 Act 16 of 2019 Introduces consequential amendments stemming from reforms to protect certain superannuation accounts.

2019 Bills passed in 2019 Social Services Legislation Amendment (Energy Assistance Payment) 2019 Act 28 of 2019 Introduces amendments to ensure that one-off energy assistance payments made under 2019 legislation are exempt from income tax. Treasury Laws Amendment (2019 Measures No 1) 2019 Act 49 of 2019 Increases the number of permissible members in a self-managed superannuation fund (SMSF) from 4 to 6 and consequential amendments to reflect changes to the customs treatment of craft brewers.

© 2020 THOMSON REUTERS

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Year In review – 2019

Treasury Laws Amendment (2019 Petroleum Resource Rent Tax Reforms No 1) 2019 Act 43 of 2019 Removes certain exclusions from the petroleum rent resources tax (PRRT) that are no longer necessary due to the exclusion of onshore petroleum projects. Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) 2019 Act 95 of 2019 Introduces amendments to modify the treatment of concessional loans that involve a tax exempt entity where that entity loses its tax exempt status, amends the small business capital gains tax concessions as they apply to partnerships where the income or capital is assigned to a non-partner of the partnership, limiting the deductions available in respect of vacant land, extends anti-avoidance rules for certain circular trust distributions, allows the Australian Taxation Office to disclose business debt information to credit reporting agencies, allows the Commissioner of Taxation to utilise electronic invoicing and ensures salary sacrifice superannuation contribution cannot adversely affect the superannuation guarantee contributions made by employers. Treasury Laws Amendment (Increasing and Extending the Instant Asset Write-Off) 2019 Act 51 of 2019 Extends the instant asset write-off for small businesses to 30 June 2020 and increases the threshold to $25,000. Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) 2019 Act 65 of 2019 Amends the thin capitalisation rules to ensure valuations for assets and liabilities used in financial reports are also used for tax purposes, removes the ability to revalue such assets and liabilities for thin capitalisation purposes, treats members of a consolidated group as both outward and inward investing entities in appropriate circumstances, ensures offshore suppliers of rights or options to use commercial accommodation include such amounts in turnover for goods and services tax (GST) purposes and removes luxury car tax from cars re-imported after being sent overseas for servicing or refurbishment. Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) 2019 Act 29 of 2019 Increases the thresholds for Medicare Levy and Medicare Levy Surcharge and the phase-in limits to be consistent with the increased thresholds. Treasury Laws Amendment (North Queensland Flood Recovery) 2019 Act 30 of 2019 Ensures that certain grants and payments made to relieve hardship stemming from floods in North Queensland in late 2018 and early 2019 are non-assessable non-exempt income. Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) 2019 Act 52 of 2019 Increases the amount of the low and middle income tax offset, adjusts the threshold for the 19% bracket and reduces the 32.5% rate to 30%. Treasury Laws Amendment (Timor Sea Maritime Boundaries Treaty) 2019 Act 59 of 2019 Introduces consequential amendments to give effect to the Treaty between Australia and the Democratic Republic of Timor-L